Even for experienced developers, such a project can have a lot of unknowns, and become a money pit.Out of curiosity, what is the total financial investment you were thinking of making?

What can happen easily is that some "investor" dreams up some method or deal he can sell to a distressed owner and they end up out smarting themselves when the deal unwinds because of some unknown or unforeseen event.From the stand point of building equity, relying on appreciation, and usually cash flow from a rental, you're better off paying a lower but market rate interest and discounting the price. :)

How do we protect both parties while ensuring there are methods to handle risks and unknowns?  

Some of the expenses I know that I should consider are Capital expenses@10% as the last roof replacement is unknown (property built in 1980s), Repair expenses@ 5%.

A lot more emotions are attached to that one and so many unknowns.

There are still too many unknowns at this point to say for sure and, of course, we never really know anything until it gets tried in court. 

The more you try to control for the unknown and estimate the worse the deals will look.In most cases it can be pretty simple for any SFH with no common fees paid by the owner. 1.  

Insurance was my biggest unknown.

Therefore, get your contractor quotes but add contingency on top of that for unknowns that your contractors won't find until they dewinterize and open up walls.

For some unknown reason, the industry standard in turnkey is to provide front-page ROI calcs (like what you see on websites to entice you) that don't include important expenses like maintenance and vacancy.